Building Dynasties: in sports and in the business world

I had the privilege of attending an event last year in New York featuring Toto Wolff, the CEO of the Mercedes AMG Formula 1 team. I would like to express my gratitude to UBS BB for inviting Vinci Compass to be a part of this remarkable event. One aspect that has always fascinated me is the translation of fundamentals of success from the sports world into the realm of business. Among the numerous factors that contribute to success, including execution, team culture, resilience, and the ability to overcome adversity, I find the creation and sustainability of sporting dynasties particularly intriguing. Mercedes serves as a prime example of such a dynasty in the modern era, having clinched the constructors' championship title in Formula 1 a record-breaking eight times between 2014 and 2021.

During the event, Toto informed us about a recently published 美国哈佛商学院 case study on Mercedes-AMG PETRONAS Formula One Team . I gathered references from the corresponding text in the Harvard Business Review, which I intend to combine with the insights discussed during the event. My objective is to establish a connection between my experiences as an investor and my involvement in board roles within companies over the past few years, and the explanations behind Mercedes' extraordinary success over the last decade. Whenever I reflect on and explore the realm of sports dynasties, I consistently observe that the fundamentals align with those found in companies that achieve remarkable success.

Position the organization for excellence at all levels

Toto emphasized the importance of politeness, humility, and serving others with care. Treating everyone with respect, regardless of position, is a key principle that permeates the entire institution and its operations.

For instance, Toto noticed that the bathrooms in the motorhomes and workshop were dirty and disorganized upon his arrival. He took it upon himself to address this issue, reflecting his commitment to excellence. Demanding high standards at all levels became part of the company's culture, ultimately impacting the team's overall performance. This constant pursuit of perfection and attention to detail extends to attending the cars and everyday tasks. When excellence becomes ingrained in the daily culture of an organization at every level, the likelihood of achieving excellence across the business increases significantly.

Vitru Educa??o , one of our invested companies in which I served as board member for several years, organized an event with José Roberto Guimar?es, a two-time Olympic champion with the Brazilian women's volleyball team and also a gold Olympic medalist with the men’s volleyball team.

During this event he shared different real-life stories, while one in particular caught my attention. Before his first gold medal win with the women`s team in Beijing in 2008, Zé Roberto called his team together for a candid conversation about their goals. Despite having enough individual talent to compete for a medal, they acknowledged a significant physical deficiency compared to other teams, particularly in terms of attack speed and serves. To have a chance at fighting for the gold, the players had to undergo extensive physical sacrifices and complete muscular readjustment, which would be a lengthy and hard process. The team agreed to pursue the gold, collectively committing to the necessary sacrifices to become physically capable of competing for first place.

The rest, as they say, is history.

Corporate environments function in a similar way. Leaders, like Toto, serve as examples of the attitudes that are valued and encouraged within the organization. Through their actions and priorities, leaders shape the direction of the organization. They determine what needs to be done individually and collectively to achieve short and medium-term goals. This includes decisions regarding personnel allocation, the required level of execution, and the commitment needed to reach the company's aspirations and goals. These factors collectively influence and guide the organization towards a specific direction.

A relentless pursuit of leadership excellence will attract and retain employees who share the same values. Talented individuals with high potential are more likely to succeed in environments that consistently strive for excellence. They will naturally be drawn to organizations that make excellence their mission. Conversely, unstructured environments lacking a clear focus tend to discourage top employees, leading them to seek opportunities elsewhere.

Place your team at the center of decisions

During the concluding lectures of my OPM program at Harvard (I was part of the OPM 50 class), Sir Alex Ferguson, renowned for creating a dynasty at Manchester United and considered one of the greatest coaches of all time, shared his insights. I asked him how he manages to guide exceptional players like Messi, Cristiano Ronaldo, and other football geniuses. How can you attempt to teach a genius to perfect their innate talent? After all, teaching them basic skills like kicking or heading seems unnecessary…

His response was enlightening: "I won't teach Cristiano Ronaldo how to head the ball, but I must convince him that following my guidance will lead to greater success than if he were to ignore it. He needs to believe that I will put him in situations that maximize his talent, and that I will equip and coach the team to play in a way that highlights his strengths. This applies not only to Cristiano Ronaldo but to the other 10 players on the field as well."

In the case of Mercedes, Toto acknowledges the importance of understanding individuals and their motivations. Formula 1 presents an additional challenge in fostering this dialogue, as it is an exceptionally technical operation where the leader often possesses less technical knowledge than the team members, such as aerodynamic engineers who excel in their respective fields. In such an environment, as seen in the earlier example, it becomes vital for leaders to establish a relationship of trust. Despite any disparity in technical expertise or knowledge, leaders must ensure that team members feel comfortable with the decision-making process, that their opinions are valued and heard, and that the resulting outcomes stem from this collaborative approach.

By prioritizing the team and creating a culture of trust and open communication, leaders can harness the collective talents and abilities of their team members, ultimately achieving greater success.

You can learn from victories too!

The point raised by Toto regarding the importance of learning and reflection not being limited to defeats is indeed excellent. It is common for a sense of relaxation to set in after a victory, leading many to miss a valuable opportunity for growth and self-improvement. Toto emphasizes the significance of analyzing mistakes even after successful outcomes, and I firmly believe that we should evaluate both wins and losses.

This perspective aligns with the advice often provided to our invested companies: the need to map out successes to increase the chances of replicating them in the future. Following a successful process, whether it's a sales campaign, exceptional returns in a new market, or positive results within a company, there should be a window of opportunity to celebrate the achievement.

However, it is crucial to pause and reflect on the factors that contributed to that outcome. Successful processes must be diagnosed and replicated, while unsuccessful ones need to be diagnosed and corrected. It is in our nature to focus on data analysis primarily when things go wrong. However, this reflection should encompass both the processes that are essential for success and the failures that may have occurred despite satisfactory results, as Toto advocates.

By treating both victories and losses with equal importance, we can extract relevant learnings from each. The question "Why did we win?" holds utmost significance. Understanding how to answer this question is essential in order to continuously improve and enhance our chances of success.

Foster a culture that accepts mistakes

This is essential for growth and development of a corporation. It is the leader's responsibility to take ownership of mistakes. Various factors can contribute to errors, such as inadequate training, placing team members in positions where they are set up to fail, or lacking support during decision-making processes.

When analyzing errors, the focus should not be on finding someone to blame, but rather on finding solutions. This approach is crucial for shaping the company's culture. If the emphasis is on finding a culprit, people may hesitate to bring up problems, fearing repercussions. In the long run, a seemingly simple problem that could have been corrected may escalate into a catastrophic event. We have witnessed numerous corporate incidents that reached unsolvable proportions because the problem was not addressed in its early stages when it could have been resolved.

The corporate culture and the direction set by leaders directly influence how these situations are handled. It is vital to publicly support the team and discuss issues internally. Toto provided an example of a race where a tire-changing error occurred, resulting in one of the team's drivers retiring from the race. Publicly, he defended the mechanic involved, while internally, they analyzed what went wrong. Toto reflected on whether the mechanic was in the best position considering his skills and proficiency. By publicly supporting the team member, Toto created an environment where the team is not afraid to make mistakes in the future.

Ultimately, Toto holds himself accountable for placing the team member in a position where failure was possible. However, it would have been convenient for him to blame the mechanic during the press conference to preserve his own reputation. These choices shape how employees make decisions in the future and significantly influence the direction of the organization as a whole.

Finally, do not accept complacency

Not accepting complacency is crucial for sustained success and the creation of a dynasty. Netflix 's documentary series "The Last Dance" describes the rise of the Chicago Bulls generation containing Michael Jordan, Scottie Pippen, Dennis Rodman among others. Jordan’s mindset during the series illustrates this point.

He repeatedly mentions that certain events or actions from opponents became personal to him. Whether it was a lack of respect, a dismissive gesture, or a simple gesture of sportsmanship like a handshake or a "good evening", he used all these moments to fuel his competitive drive. Despite his numerous achievements and records, Jordan understood the importance of keeping the fire within him burning, and we heard the following phrase over and over: “It became personal to me”.

Being driven solely by the desire to be a champion or to come in first place is not enough to create a dynasty. It requires assembling a team of exceptional individuals in the right positions, individuals who are unafraid of making mistakes and constantly striving for perfection. It is common to see complacency and a sense of comfort set in after a victorious period. The initial goal has been achieved, and there is a temptation to rest on one's laurels.

While celebrating success is important and should be embraced, as Toto emphasized, it is vital to continually seek personal motivators to extract the best performance from everyone. Consider the thought: "Identify the person on the opposing team who is equivalent to your position. Now imagine that every day, that person wakes up and goes to sleep with only one goal: to defeat you." If this scenario ignites a strong desire within you to compete, give your best, find solutions to problems, and drive your team forward, then you have taken the first step towards being or becoming part of a dynasty.